District Court Dismisses Shareholder Derivative Suit Brought Under Foreign Law under Doctrine of Forum Non Conveniens

The World in U.S. Courts: Fall 2015 - Personal Jurisdiction/Forum Non Conveniens

Holzman v. Xin, U.S. District Court for the Southern District of New York, September 18, 2015

Plaintiff, a stockholder in SinoTech Energy Limited—a non-U.S. company incorporated in the Cayman Islands—brought a derivative suit against SinoTech's directors and officers. He claimed that various members of SinoTech's executive committee and board breached their fiduciary duties by failing to report that the majority shareholder was enriching himself with corporate assets. Defendants moved to dismiss on forum non conveniens grounds.

The District Court applied a three part test for forum non conveniens, determining (1) the degree of deference owed to the plaintiff's choice of forum, (2) the extent to which an adequate alternative forum existed, and (3) the public and private interests at stake in choosing the Plaintiff's forum over the Cayman Islands, proposed by the Defendants as the more appropriate location for litigation.

The Court began by determining that the Plaintiff's choice of forum was entitled to "relatively little deference." While generally a plaintiff's choice to litigate in his home forum is entitled to great deference, Plaintiff here was a resident of Ohio suing in New York Federal court. The Court further reduced the deference owed to the Plaintiff's choice because he was suing on behalf of a large number of individuals from various jurisdictions.

The Court next decided that the Cayman Islands was an adequate alternate forum, basing its analysis on a two-factor test: whether (1) the defendants are amenable to service there and (2) the alternate forum permits litigation of the subject matter of the dispute. The plaintiff argued that the first factor could not be satisfied because difficulties in service outside the U.S. required as a practical matter that each defendant consent to service there, which would not occur. The Court rejected this argument, noting that while service may be difficult the question is whether it was possible. As to the second factor, the plaintiff did not dispute that the Cayman Islands permits shareholder litigation against corporate officers.

The Court then considered the private and public interest factors used in the third step of the forum non conveniens analysis. The Court used the following five factors to determine the private interests involved: (1) ease of access to evidence, (2) availability of compulsory process, (3) cost for cooperative witnesses to attend trial, (4) enforceability of a judgment, and (5) all other practical matters that might shorten a trial or make it less expensive. Because nearly all the witnesses in the case were located in China, the Court concluded that the private interest was neutral between New York and the Cayman Islands. Plaintiff argued that because the Cayman Islands does not allow lawyers to use contingency fees, he would be burdened by being required to litigate there, but the Court disagreed. Because contingency fees are rare in non-U.S. forums, the Court reasoned that making their availability a deciding factor would foreclose nearly all forum non conveniens dismissals.

Turning to the public interest, the Court considered court congestion, the interests of forums in deciding local disputes, and the interest in issues of foreign law being decided by foreign tribunals. While court congestion was in neither forum's favor, the Court concluded that the last two factors heavily favored the Cayman Islands. The Court noted that the suit was not local to New York because it did not arise out of the Defendant's contacts with New York. Additionally, Plaintiff's claims were brought solely under Cayman Islands law. As a result, the Court observed it had virtually no legal interest in deciding the suit. On the other hand, the Cayman Islands had a significant interest in applying its own law to the SinoTech, which was incorporated in that country.

Finding all three factors in favor of applying forum non conveniens, the Court dismissed the case.

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